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Washington - American households lost $1.33 trillion of their wealth in the first three months of the year as the recession took a bite out of stock portfolios and dragged down home prices.
The Federal Reserve reported on Thursday that household net worth fell to $50.38 trillion in the January-March quarter, the lowest level since the third quarter of 2004. The first-quarter figure marked a decline of 2.6%, or $1.33 trillion, from the final quarter of 2008.
Net worth represents total assets such as homes and checking accounts, minus liabilities like mortgages and credit card debt.
The damage to wealth in the first quarter came from the sinking stock market. The value of Americans' stock holdings dropped 5.8% from the final quarter of last year.
The slide on Wall Street that began in late 2007 and gained speed last fall erased more than half the value of the U.S. stock market.
The central bank's numbers don't reflect all the gains since stocks began rallying in March.
Another hit to household net worth came from falling house prices. The value of real-estate holdings fell 2.4%, according to the Fed report.
Collectively, homeowners had only 41.4% equity in their homes in the first quarter. That was down from 42.9% in the fourth quarter and was the lowest on records dating to 1945.
The latest snapshot of Americans' balance sheets was contained in the Fed's quarterly report called the flow of funds.
Despite the drop, the speed at which net worth shrunk slowed at the start of the year. During the recession's deepest point in the October-December period, Americans' net worth fell a record 8.6%, according to revised figures. That was the largest drop on records dating to 1951.
With wealth declining and unemployment rising, there are questions about how consumers - the lifeblood of the economy -will behave in the coming months.
If they continue to spend, even at a subdued pace, the recession likely will end this year as predicted by Fed Chairman Ben Bernanke and other economists. However, if consumers hunker down and cut spending again, that could delay any recovery. In the final quarter of last year, Americans slashed spending at an annualised rate of 4.3%, the most in 28 years.
- AP